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Facebook (FB) to Report Q4 Earnings: What's in the Cards?

Facebook FB is set to report fourth-quarter 2018 results on Jan 30. As always, the social media giant's user base growth will be closely monitored by all.

Notably, monthly active users (MAUs) increased 199 million on a year-over-year basis and 37 million sequentially to 2.271 billion in the last reported quarter.

Moreover, daily active users (DAUs) were 1.495 billion, up 127 million year over year and 24 million sequentially, and represented 66% of MAUs. Asia-Pacific was Facebook’s fastest growing market in the quarter, driven by growth in India, Indonesia and the Philippines. Asia-Pacific DAUs increased 85 million year over year and 15 million sequentially to 561 million.

The Zacks Consensus Estimate for fourth-quarter DAUs Asia and MAUs Asia is pegged at 582 million and 953 million, respectively.

Facebook also stated that more than 2.6 billion people use its “Family” of services, which includes Facebook, WhatsApp, Instagram and Messenger, on a monthly basis. Additionally, more than 2 billion people use at least one of its services daily, on an average.

Facebook, Inc. Price and EPS Surprise

Facebook, Inc. Price and EPS Surprise | Facebook, Inc. Quote

However, the company has faced a lot of controversies over its user data policies and proliferation of fake news on the platform. Although Facebook’s aggressive spending on security is expected to clean up the platform, this is likely to keep margins under pressure.

Facebook’s Guidance Unimpressive

Facebook’s third-quarter 2018 earnings of $1.76 per share beat the Zacks Consensus Estimate by a whopping 30 cents. However, revenues of $13.73 billion lagged the consensus mark of $13.81 billion.

Facebook expects revenue growth rate to decelerate in the fourth quarter along with a 50-55% increase in expenses, driven by data privacy initiatives.

The Zacks Consensus Estimate for Facebook’s fourth-quarter earnings is pegged at $2.17, unchanged over the past 30 days. However, the figure is expected to decline 1.4% year over year. Moreover, the consensus mark for revenues is $16.37 billion, up 26.2% from the year-ago quarter.

Notably, Facebook has an impressive earnings surprise history, beating the Zacks Consensus Estimate in three of the trailing four quarters, with the average being 14.1%.

Growth Drivers Abound

Facebook has been benefiting immensely from the growing popularity of Stories across all its major platforms, with Instagram taking the center stage.

Facebook’s strategy of developing Stories to support ads is expected to drive growth. The company rolled out ads in Facebook Stories in third-quarter 2018. It also worked on improving the look of these ads to make them suitable for Stories.

Notably, Instagram and WhatsApp are the top two most popular Stories products in the world. Furthermore, the company is well poised to benefit from the growing demand for videos across its platforms.

Instagram has significant growth opportunities, driven by rapid proliferation of Stories, Direct and IGTV. The addition of shopping features to Instagram Stories has increased its popularity significantly, with daily active users (DAUs) touching 400 million. Notably, Instagram is Facebook's fastest growing division based on its more than 1 billion monthly users and 500 million daily users.

The company has undertaken several measures to curb misuse of its platform. These included removal of pages and accounts that were found spreading misinformation ahead of elections in Bangladesh, India, Brazil and the United States.

Facebook’s efforts to enhance security will boost user confidence and attract more ad dollars, which contribute significantly to the top line (98.6% of third-quarter 2018 revenues).

The consensus mark for fourth-quarter advertising revenues is $16.34 billion.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or #3 (Hold) has a good chance of beating estimates, if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Currently, Facebook has a Zacks Rank #3 and an Earnings ESP of -3.32%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are few stocks you may consider as our proven model shows that these have the right combination of elements to post an earnings beat in the quarter to be reported.

Twitter TWTR has an Earnings ESP of +26.55% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lumentum Holdings LITE has an Earnings ESP of +1.1% and a Zacks Rank #2.

Square SQ has an Earnings ESP of +6.6% and a Zacks Rank #2.

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